NEW YORK — General Motors Corp. filed for Chapter 11 bankruptcy protection Monday as part of the Obama administration’s plan to shrink the automaker to a sustainable size and give a majority ownership stake to the U.S. government.
GM’s bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has US$172.81 billion in debt and $82.29 billion in assets.
The fallen icon of American industrial might will rely on US$30 billion of additional financial assistance from the Treasury Department as it reorganizes. That’s on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.
A person familiar with General Motors’ plans told The Associated Press that the automaker will permanently close nine more plants and idle three others to trim production and labour costs under bankruptcy protection.
In Canada, the company has already shut down its Oshawa, Ont. truck plant, affecting 2,600 workers, and will close a transmission factory in Windsor next year, with the loss of another 1,400 jobs.
The GM bankruptcy is expected to ripple through the auto parts industry on both sides of the border as companies reel from the loss or orders and unpaid bills by GM.
In Canada, No. 2 parts giant Linamar Corp. (TSX:LNR) said it has limited exposure to GM on both the receivables and sales volume side, with less than $2.8 million in GM debt owed that’s older than 20 days.
“We are of course disappointed that GM was unable to successfully negotiate with stakeholders a satisfactory solution to allow them to avoid Chapter 11, however, we feel that we are in a strong position to weather the situation given steps we have taken over the past months to minimize our exposure”, said Linda Hasenfratz, CEO of the Guelph, Ont. company, which has 9,000 employees around the world.
In the United States, assembly plants in Pontiac, Mich., and Wilmington, Del. will also close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby.
Powertrain plants in Livonia, Flint and Ypsilanti Township, Mich. will close next year, along with plants in Parma, Ohio, and Fredericksburg, Va.
Stamping plants in Indianapolis and Mansfield, Ohio, also will close. A stamping plant in Pontiac, Mich., will remain on standby.
The person spoke on condition of anonymity because the plans have not been made public.
A union spokesman at the GM plant in Spring Hill confirmed the 2,500 employees there have been told the plant will be idled.
Meanwhile, the president of the Canadian Auto Workers Union said Monday he expects some Canadian plants to suspend production while the U.S.-based parent company files for bankruptcy protection.
CAW president Ken Lewenza told The Canadian Press he is cautiously optimistic that GM’s Canadian unit may be able to avoid seeking creditor protection, but concedes it is still a possibility.
“I . . . would be incredibly surprised if we don’t lose some production as a result of the Chapter 11 in the United States,” he said in a telephone interview. “If it doesn’t, that means (GM’s Canadian unit) did their homework much more detailed than one could anticipate.”
He wouldn’t speculate which Canadian plants might be idled.
The company plans to streamline its Canadian production to about 6,000 jobs from 20,000 in 2005, but no new plant closures are expected beyond what was announced last year. Meanwhile, the two car assembly plants in Oshawa are expected to survive the restructuring.
GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and hopes to emerge from its government-sponsored bankruptcy this week.
The plan is for the U.S. government to take a 60 per cent ownership stake in the new GM. The Canadian government would take a 12.5 per cent stake, with the United Auto Workers getting a 17.5 per cent stake and unsecured bondholders receiving 10 per cent. Existing GM shareholders are expected to be wiped out.
Media reports suggest the Ottawa will invest about $9 billion in the restructured company.
U.S. President Barack Obama is scheduled to publicly discuss GM’s future at midday from Washington, and GM CEO Fritz Henderson is to follow him with a news conference in New York.
GM’s U.S. filing comes 32 days after a Chapter 11 filing by Chrysler, which also was hobbled by plunging sales of cars and trucks as the worst recession since the Great Depression intensified.
The third of the one-time Big Three, Ford Motor Co., has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.
The downsized GM’s brands will be limited to Chevrolet, Cadillac, GMC and Buick. Its Pontiac, Saturn, Hummer and Saab operations will be either sold or closed. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.
GM, whose headquarters tower over downtown Detroit, said it believed the filing was not an acknowledgment of failure, but a necessary way to cleanse itself in an orderly fashion of problems and costs that have dogged it for decades.
Trading of GM shares was halted early Monday after they plunged Friday as low as 74 cents, the lowest price in the company’s 100-year history. GM will be kicked out of the Dow Jones industrial average because rules established by the News Corp. unit that oversees the index prohibit it from including companies that have filed for bankruptcy.